The Labor Act, 2017 (2074) (“New Labor Act”) passed by Parliament on August 11, 2017 (Shrawan 27, 2074) and given presidential assent on September 4, 2017. (2074-05-19). The New Labor Act is now effective as of the date of the President’s assent under Section 3 (f) of the Interpretation of Statutes Act of 1953. (2010). The Labor Act of 1992 (2048) (the “Previous Act”) was repealed by the New Labor Act. The New Labor Act has completely altered Nepal’s employment regime. The main provisions of the New Labor Act are summarized here.
1. Applicability of the New Labor Act
Definition of Entity
The New Labor Act applies to any entity, which has been defined as a company, private firm, partnership firm, cooperatives, association, or other organization (“entity”) that is in operation or that has been established, incorporated, registered, or formed under prevailing laws to engage in industry or business or to provide service for profit or not.
Head Count Threshold
The head count threshold for applicability has been eliminated by the New Labor Act. The New Labor Act applies to all companies, regardless of the number of workers (employees). The previous Act only applied to businesses with ten (10) or more employees.
However, the head count criterion remains in place for specific arrangements to be implemented in the entity, such as an entity with ten (10) or more workers should form a collective bargaining committee, labor relations committee, and so on.
Entity Registered in Foreign Country
The New Employees Act includes procedures for resolving disputes with entities registered in other countries but conducting sales and market activities in Nepal through a representative or hiring labor in Nepal.
According to the New Labor Act, if a foreign entity violates the terms and conditions of the employment agreement, the representative or labor engaged by the foreign entity may submit a complaint with the Labor Office or the Labor Court.
Exempted Entity:
The New Labor Act eliminated the head count threshold for applicability. The New Labor Act applies to all enterprises, regardless of the number of labors (workers/employees). The previous Act only applied to entities with ten (10) or more employees.
However, the head count criterion remains in place for specific arrangements to be implemented in the business, such as an entity with ten (10) or more employees should form a collective bargaining committee, labor relations committee, and so on.
2. Hiring
Employees
The New Labor Act has provided flexibility in hiring providing different modes of hiring as per the requirement of the entity:
Regular Employment: the person hired for the work or service other than work based, time bound, casual or piece rate employment.
Work Based Employment: the person hired for carrying out specific work or rendering specific service.
Time bound Employment: the person hired for carrying out work or rendering service for definite period.
Casual Employment: the person hired to carry out the work or rendering service for seven or less days in a month.
Part -time Employment: the person who is hired in such a manner that he works for 35 hours or less in a week.
The Part-time worker cannot be restricted to work in other places. The remuneration of such part time worker shall be on the basis of the hours he/she works unless otherwise provided in the employment agreement. The remuneration shall be determined on the basis of remuneration of regular employee engaged in similar work. The part time worker shall be entitled to social security benefits.
Intern: The New Labor Act created the idea of intern, under which any person may be permitted to work as an intern in accordance with the approved syllabus of any educational institution after entering into an agreement with that educational institution.
Interns may not work more than 8 hours per day and 48 hours per week. Interns are entitled to health and safety provisions, as well as medical expenses and compensation in the event of a workplace injury. If the intern performs work that is not specified in the job description, he or she is considered a regular employee.
Trainees:The New Labor Act created the idea of intern, under which any person may be permitted to work as an intern in accordance with the approved syllabus of any educational institution after entering into an agreement with that educational institution.
Interns may not work more than 8 hours per day and 48 hours per week. Interns are entitled to health and safety provisions, as well as medical expenses and compensation in the event of a workplace injury. If the intern performs work that is not specified in the job description, he or she is considered a regular employee.
Outsourcing
The previous Act made no provision for job/service outsourcing. However, the practice of outsourcing had judicial baking and allowed for the outsourcing of certain manual tasks such as security officers, transportation, cleaning workers, couriers, and so on.
The New Labor Act addresses outsourcing agreements.
Work for Outsourcing: Outsourced laborers can be engaged in tasks other than the entity’s main functions. The work that can be done by outsourced laborers is specified in the Nepal Gazette.
Outsourcing Agency: The Labor Office or Labor Department-licensed company can give labor to another entity. Existing labor suppliers must register and get a license within six (6) months after the New Labor Act’s implementation date.
Restriction:A company cannot provide manpower for more than two works or services.
The New Labor Act further limits the availability of laborers from labor suppliers in cases where the Main Employer, his management, or family members are engaged.
Obligation of the Main Employer: The Licensed Labor Supplier should be used by the Main Employer (the person delivering work to the outsourced employees. If laborers are obtained via an outsourcing firm that is not licensed for labor supply, the laborers are considered to be employees of the Main Employer. The Main Employer may hire laborers provided by the Labor Supplier if an agreement is reached with the Labor Supplier. The agreement shall ensure that laborers are not paid or provided with facilities that fall below the minimum salary and benefits established by the New Labor Act.
Obligation of Labor Supplier:To conduct business, Labor Supplier must get a license. The Labor Office or Department will give the license only when the Labor Supplier provides the security or bank guarantee. Such outsourced workers should be compensated and provided with other benefits by the labor supplier. The Labor Supplier’s license may be revoked for failure to provide salary and other benefits. The Labor Supplier may be penalized up to Rs. 25,000 for breaking any of the Nee Labor Act’s regulations or instructions. In the event that the Labor Supplier is liquidated, the workers must be paid the outstanding salary and benefits within 15 days. If the Labor Supplier fails to make such payment, it will be made using the security or bank guarantee provided.
Hiring Foreign Nationals
The New Labor Act maintains the broad parameters of hiring foreign nationals by a local entity, stating that the foreign national may be hired only if local skill sets are unavailable for the work. In addition to the basic norm for hiring foreign nationals, the New Labor Act includes new measures such as flexibility on work permits for specified entities, the wording of employment agreements, wage repatriation, and terms and conditions of service, among others.
The provisions are stated shortly below.
General Provisions: No foreign nationals may work unless they have secured a work permit from the Department.
Prior to hiring a foreign national, the business must place an advertisement in a national level daily newspaper seeking Nepali residents to fill available positions. If no applications are received or if no local skill set is available for any job after the opening is advertised, a foreign national may be hired with the approval of the Labor Department.
Entity with foreign investment or operating on foreign aid: Work permit to the foreign nationals hired as the chief executive may be provided by simply recording them at the Department. The work permit may also be provided in the same manner to the employees for such number as prescribed.
Work Permit for technicians for short period: Technicians engaged for less than three (3) months to carry out repairing of any machinery or installing new technology or similar casual work may be provided work permit simply by recording in the Labor Department.
Employment Agreement: As per the New Labor Act, no foreign national can be engaged in work without the employment agreement which should be entered into either in language understandable by such foreign national or in English language. Unless otherwise provided in the agreement, the employment agreement continues for three years.
Repatriation of Income: The foreign nationals can repatriate their income in convertible foreign currency.
Work Permit Exemption: The foreign nationals having diplomatic immunity or the foreign nationals who are exempted from work permit under the treaty or agreement entered into with Nepal government are exempted from work permit requirement.
3. Working Hours
Working Hours continue to be 8 hours a day and 48 hours a week. Overtime has been increased to 24 hours per week from 20 hours a week.
Unlike the Previous Act, the New Labor Act simply requires to make arrangement for transportation while engaging a female employee in such a way that the working period begins or ends before the sunrise or after the sunset.
7. Safety and Health Arrangement
Formulation of Safety and Health Policy: As per the New Labor Act, the entity should formulate the safety and health policy as per the Regulation or Directive. Such policy should be registered with Labor Office.
Formulation of Safety and Health Policy: As per the New Labor Act, the entity should formulate the safety and health policy as per the Regulation or Directive. Such policy should be registered with Labor Office.
Safety and Health Committee: Where 20 or more workers are engaged in work in an entity, employer shall constitute a safety and health committee having the representation of workers.
Employer’s Duties– The New Labor Act has set out the duties of employer towards workers which include making appropriate safety and health arrangement, arrangements ensuring no adverse effect on workers from use, operation, storage or transport of chemical, physical or biological liquids, disseminating necessary notice, information and training related to safety and health arrangements, etc. It also sets out the general obligation of employer towards non-workers such as putting the signs to indicate the safety or health hazards, to manage the gas, chemicals waste of the entity so as not to cause adverse effect on local animals, people or environment, etc.
Employee’s Duties-The New Labor Act also sets out the duties of workers related to safety and health arrangements which includes refraining from doing any activities that are likely to cause adverse effect on safety and health of any individuals in the entity, cooperate with the employer to effect the health and safety arrangements, to compulsorily use the personal safety devices provided by the employer, etc.
Stopping Work– In case of the immediate threat of any injury or adverse effect on health or damage to the devices in the entity, the worker should provide the information thereof to the employer who should cause to stop the work until the period the threat is prevented or minimized.
Preventing Communicable Diseases– The employer should arrange for the prevention of communicable disease in the workplace. The worker suffering from the communicable disease can be ordered to stay in the unpaid leave or adjust with other leave and may be restricted to come to workplace until cured.
Medical Expenses– In case any worker suffers from the work related hazardous disease, he/she should be provided medical expenses. And where such disease cannot be cured the worker should be provided compensation as prescribed.
Light Work to Pregnant– The employer is required to make arrangement to put the pregnant female laborer is such work which generally does not have adverse impact on her health.
Termination of Service of Time Bound Employees
The employment of the employee on time bound employment is terminated after the expiry of the time period prescribed in the employment agreement
Termination of Service of Work Based Employee
The employment of the worker on work bound employment is terminated after the completion of the work provided in the employment agreement. However, the employment continues if the worker is engaged in a project and the time period of such project is extended.
Termination for Poor Performance
If the performance of the employee is found to be unsatisfactory or below the standard in the performance appraisal for three or more times, the employment of such worker may be terminated by the employer. However, prior to terminating the employment the performance appraisal as per the Regulation under the Act or Bylaws should have been conduct. Such employee should be provided an opportunity to submit explanation giving at least seven (7) days by the employer where ten (10) or more people work.
Termination due to Health Reason
In case any employee is physically or mentally disabled or injured rendering him/her unable to work or requiring a long period for medical treatment effecting in the work of the entity, the employer, on recommendation of a medical practitioner may terminate his/her employment. However, if the worker suffers injury due to accident in the workplace or due to workplace hazard and is undergoing the treatment, the employment cannot be terminated until a year from the date of starting of such treatment. The employment of a worker undergoing the treatment cannot be terminated until 6 months unless it is certified by a medical practitioner that he/she won’t be able to return to work.
10. Flexibility in Retrenchment
The New Labor Act has amended the requirement of prior approval of Department of Labor to retrench employees. As per the New Labor Act, the workers can be retrenched as agreed with the Trade Union or Labor Relation Committee in absence of Trade Union. Where the agreement cannot be reached with the Trade Union or the Labor Relation Committee the employees can be retrenched by giving information to the Labor Office.
The employees are entitled to the retrenchment compensation at the rate of one month salary for each year of service. The compensation is paid on proportionate basis for the service rendered below one (1) year. The employee who is paid unemployment allowance is not entitled to the retrenchment compensation. The rule of retrenchment does not apply to the employer have less than 10 people.
11. Collective Bargaining
Formation of Collective Bargaining Committee
As per the New Labor Act, in an entity with 10 or more employees, there should be a collective bargaining committee. The New Labor Act also defines as to how the committee should be formed such as by authorized trade union or by all the trade unions in absence of authorized trade union or by the signature of 60 percent workers in absence of any trade union. The member of the committee should be at least 3 but not exceeding 11. The committee is authorized to submit collective demands, negotiate and settle the demand, among other things.
Excluded matters from Collective Demand
The Labor Act excludes certain matters from collective demand such matter include, if it is (a) contrary to the Constitution of Nepal, (b) against interest of others due to being baseless allegation, (c) prejudicial to the personal conduct of any worker or employee; (d) unrelated to the entity, (e) without expiry of the time of the collective bargaining agreement, (d) about the rate and benefit prescribed for social security.
Procedure for Settlement of Collective Dispute
The Collective Bargaining Committee submits the collective claim in writing to the employer. Upon the receipt of the collective claim, the employer must provide a notice in writing within 7 days specifying the place and time for discussion. If the employer does not call for discussion or if the problem is not settled through discussion within 21 days, application can be submitted to the concerned Labor Office for mediation.
Strike
If the dispute is not settled through mediation within 21 days the employees can go to strike giving seven (30) day notice if they do not agree for arbitration. Even the matter is referred to arbitration the employee may go to strike in certain situation as defined in the New Labor Act.
No Secret Ballot Required for Strike
Unlike Previous Act the New Labor Act does not require secret ballot to go for strike. They can go for strike simply giving notice to the management and other security agencies.
Strike should be Peaceful
The Labor Act provides that the strike should be peaceful and the employees may call meeting at main entrance of the entity. However, the employee should not obstruct access to and from the premises and cause any loss.
Mandatory Arbitration for Collective Disputes
The New Labor Act requires the disputed parties to settle the dispute by arbitration in certain situations or for certain entities depending upon their nature. Such situation or entity includes the situation where the employer and collective bargaining agree to settle the dispute by arbitration. The entity the collective dispute of which should be settled through arbitration include the entity (a) providing essential service, or (b) established in Special Economic Zone, (c) state of Emergency declared as per the Constitution.
The Arbitration Tribunal is composed by the Ministry constituting representatives of workers, employer and Nepal Government. Any agreement between the Collective Bargaining Committee and Employer in regard to collective dispute or award of the arbitration tribunal is binding upon both the parties.
Lock Out
The requirement of Lock Out is mostly similar to that of the Previous Act that the management can lock out the entity in the case of illegal strike or violent activities in strike. The major change related to Lock Out is that the prior approval of Department of Labor is sufficient and the approval of Government is not required.
Remuneration during Strike and Lock Out
The employees are entitled to half remuneration during lawful strike or lawful Lock Out. The employees are not entitled to any remuneration for unlawful strike. Conversely, the employees are entitled to full remuneration during unlawful Lock Out.
Government Intervention
The government has authority to require the parties to settle any collective disputes at any stage through arbitration if it potentially trigger financial crisis in the country or the government believes that the dispute should be settled through arbitration.
Special Provisions on Collective Dispute
The New Labor Act also provides that the collective bargaining may be placed and settled not in each individual entity but jointly for all the industries in the same sector in association level. The association of the industries of one sector may enter into the collective bargaining agreement with the association of trade union active in such business sector. In the situation the individual industry is not required to deal with collective demand separately.
13. Social Security
The Labor Act requires the retirement fund such as (a) gratuity, and (b) provident fund to be deposited in the Social Security Fund. There has been separate law on social security. The parliament has enacted the Social Security Act, 2017 (2074) which has also been also obtained the accord of assent of the President on August 16, 2017.
14. Other Key Provisions
Composition of Labor Court
As per the Act, the Labor Court shall consist of a chairperson and two members. The jurisdiction of the Labor Court is exercised collectively where the majority opinion prevails.
Appeal
Any decision or order of the Department or Labor Office can be appealed at Labor Court within 35 days of such order or decision. Any decision of the entity terminating the employment or on disciplinary action can be appealed at Labor Court within 35 days of having obtained the notice of such decision. The appeal on the case originally tried and settled by the Labor Court is placed at Supreme Court. Any decision rendered by the Labor Court exercising appeal jurisdiction is final.
Enforcement of Decision
The concerned party should enforce the decision or order of the Labor Court after the finality of such order or decision. The decision on individual or collective dispute or the arbitral award should be enforced by the concerned parties. If the decision or order is not implemented, the concerned party can file an application to the Labor Office for implementation. The Labor Office can write to the concerned worker or employer for the implementation of such agreement, decision or order, which shall be effected within 15 day.
If the order, decision or agreement is not enforced as per the procedure mentioned above, the concerned party may submit an application to the Labor Office for enforcement of such order, decision or agreement. For this purpose, the Labor Office may write to the concerned office or officer to freeze the immoveable property, to freeze the bank account, to freeze or suspend the concessions, exemptions granted under prevailing laws, to suspend the work permit, or issue other necessary orders.
The concerned party can file a complaint to the Labor Court if the order, decision or agreement, or arbitral award is not enforced within 3 months from the date of filing of application with the Labor Office or within 15 days from the date of action taken by the Labor Office for enforcement. The Labor Court provides a certain time period for implementation and non-compliance during the period is punished with fine up to Rs. 100,000 or imprisonment up to 1 year.
Regulation of Management Level Employee
Manager and managerial level employee have been prohibited from submitting collective demands on behalf of trade union, taking part in collective bargaining and taking part in strike.
Performance Appraisal
The entity can conduct performance appraisal of its workers once in a year in general. The bases and procedure of appraisal should be justifiable and reasonable, and disclosed to workers prior to performance appraisal. The worker should be provided an opportunity to present disagreement on the appraisal, if any. The entity should arrange for the review of the appraisal if such disagreement is submitted.
Certificate of Work Experience
The entity should provide a certificate of work experience stating the period of the service and the post if the worker whose service has been terminated asks for one.
